Incentives to lure housebuyers hit Bovis profit margins

Housebuilder Bovis Homes said yesterday its profit margins were hit badly by discounts and incentives that it had given customers since August in an attempt to stay afloat through the housing market collapse. The statement sent its shares down in the morning as a Halifax survey revealed that house prices fell 15% in the year up to October. Bovis shares later leapt up in response to the base rate cut to end more than 8% up at 387.75p.

Bovis is likely to have seen an even stiffer price erosion of 10% to 15% since August, said analysts at Panmure Gordon.

The group has decided to reduce its new investment both in land for development and houses that are still in progress. There have been no purchases of land in the second half of 2008 to date. Instead the builder will concentrate on selling its finished houses to generate cash. This means it will complete about 1,800 homes - of which 600 would be social and partnership houses - down 39% from last year but still ahead of guidance given in August.

The company said mortgage approvals for home purchases in Britain declined 70% over a year ago, leading to a sharp drop in home buying. It expects profits for the year to be largely in line with analyst expectations - between £12m and £14.5m - but a write-down is expected in December, which analysts set at about £60m.

It had expected net debt of between £150m and £160m at the year end, but said yesterday it would improve on that, with the figure now at £124m.

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